While the US post-11 September has tightened the work and residence permit processes, the leader of the global economy has not closed its doors to the needs of international business. Blair Curtis guides you through the paperwork.

• Overview
• Setting up a company
• Taxes
• Social security
• Visas
• Tips
• News
• Links

OVERVIEW

The United States has been struggling to come to terms with the shocking events of 11 September and global terrorism as its economy, which makes up one quarter of the world’s economic output, continues to falter amidst massive corporate accounting scandals.

With national security tighter than ever, non-US residents who want to enter the country are encountering delays and run-ins with immigration officials.

But for all of the recent troubles, the United States remains the world’s biggest player, an important market for hundreds of multinationals, and therefore, a temporary home for expatriates from all continents.

SETTING UP A COMPANY

Establishing a company in a country that comprises 50 states, each with its own set of rules and regulations, can be a complicated process. In the US, corporations are not created under national law but under the law of an individual state. This means that if a corporation has been set up in say, Arkansas, it is treated as a foreign corporation in Colorado and must “qualify” to do business there.

Many businesses become incorporated in the large population centres of New York, California, Florida and New Jersey. Many non-US companies also establish companies in Delaware and Nevada because of their easy compliance requirements and business-friendly environments.

TYPES OF COMPANIES

General Corporation

A general corporation, also known as a “C” corporation, is the most common corporate structure. A general corporation may have an unlimited number of stockholders. Consequently, it is usually chosen by those companies planning to have more than 30 stockholders or large public stock offerings. Since a corporation is a separate legal entity, a stockholder's personal liability is usually limited to the amount of investment in the corporation and no more.

Close Corporation

A close corporation is most appropriate for the individual starting a company alone or with a small number of people. There are a few significant differences between a general corporation and a close corporation. A close corporation limits stockholders to a maximum of 30. In addition, many close corporation statutes require that the directors of a close corporation must first offer the shares to existing stockholders before selling to new stockholders. Not all states recognise close corporations.

Subchapter S Corporation 

A Subchapter S Corporation is a general corporation that has elected a special tax status with the IRS after the corporation has been formed. Subchapter S corporations are most appropriate for small business owners and entrepreneurs who prefer to be taxed as if they were still sole proprietors or partners.

When a general corporation makes a profit, it pays a federal corporate income tax on the profit. If the company also declares a dividend, the stockholders must report the dividend as personal income and pay more taxes. S Corporations avoid this "double taxation" (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the stockholders. For many small businesses, the S Corporation offers the best of both worlds, combining the tax advantages of a sole proprietorship or partnership with the limited liability and enduring life of a corporate structure.

Limited Liability Company (LLC)

The LLC is not a corporation, but it offers many of the same advantages. Many small business owners and entrepreneurs prefer LLCs because they combine the limited liability protection of a corporation with the "pass through"" taxation of a sole proprietorship or partnership. LLCs do not have the ownership restrictions of S Corporations, making them ideal business structures for foreign investors.

TAXES

The US tax system for expatriates moving to the country can be an extremely complicated one. Those planning to live in the US need to be aware that “residency” for tax purposes is broken into two categories - income tax and estate and gift tax.

Income tax: Non-US citizens are split into two categories – Residents Aliens (RA) and non-resident aliens. A non-US person is considered a Resident Alien is they are a green card holder, or meet the substantial presence test, which applies a weighted average to determine if a person is physically present in the US for at least 183 days.

Estate and gift tax: A person is considered an RA for estate and gift tax purposes if the person is domiciled in the US, which means the person lives in the US with no intention of leaving. Because this is objective, there are a number of factors that are considered in determining an individual’s residency for estate and gift tax purposes, including statements of intent (wills, visa applications, tax returns etc), length of US residence, green card holder, style of living in the US and abroad, ties to former country, country of citizenship, location of business interests, and place where club and church affiliations, voting and driver’s licences are maintained.

Non-US citizens who do not satisfy the residency requirements for both income and estate and gift tax will be considered Non-Resident Alien (NRA).

Estate tax is the taxation of property held by an individual at the time of their death, and is levied on the estate before any transfers. An estate tax is a charge upon the decedent's entire estate, regardless of how it is disbursed.

Gift tax laws are generally designed to prevent complete tax avoidance by this route. The Federal Estate Tax is integrated with the Federal Gift tax so that large estates cannot be shielded from taxation by lifetime giving. Many states also impose an estate tax.

Double taxation treaties

For expatriates moving to the US, the possibility that an individual may be subject to taxation in the US and their home country is sometimes overcome through income tax treaties.These treaties ensure that residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from US income taxes they receive from sources within the United States.

As many of the individual states of the US tax the income of their residents, individuals should contact the tax authority of the state in which they live to find out if that state taxes the income of individuals and if so, whether the tax applies to their income.

Here’s a list of countries that have some form of tax treaty with the US:

Australia, Austria, Barbados, Belgium, Canada, Cyprus, China Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Indonesia, India, Ireland, Italy, Israel, Jamaica, Japan, Kazakhstan, Latvia, Lithuania, Luxembourg, Mexico, Morocco, The Netherlands, New Zealand, Norway, Pakistan, the Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, South Africa, Spain, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, The United Kingdom, Venezuela.

SOCIAL SECURITY

The United States has bilateral social security agreements with 19 countries. They include Austria, Belgium, Canada, Chile, Finland, France, Germany, Greece, Ireland, Italy, Korea, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

GOVERNMENT: Federal Republic POPULATION: 280.6 million (July 2002 estimate). Ethnic groups: White 77.1 percent, black 12.9 percent, Asian 4.2 percent, Amerindian 1.5 percent (2000) note: a separate listing for Hispanic is not included because the US Census Bureau considers Hispanic to mean a person of Latin American descent (especially of Cuban, Mexican, or Puerto Rican origin) living in the US who may be of any race or ethnic group (white, black, Asian, etc.) CAPITAL: Washington, DC CURRENCY: US Dollar ECONOMY: The US has the largest and most technologically powerful economy in the world, with a per capita GDP of USD 36,200. In this market-oriented economy, private individuals and business firms make most of the decisions, and government buys needed goods and services predominantly in the private marketplace. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment. KEY TRADING PARTNERS: Export partners: Canada 23 percent, Mexico 14 percent, Japan 8 percent, UK 5 percent, Germany 4 percent, France, Netherlands (2000). Import partners: Canada 19 percent, Japan 11 percent, Mexico 11 percent, China 8 percent, Germany 5 percent, UK, Taiwan (2000) LANGUAGES: English and Spanish (spoken by a sizeable majority). Source: CIA World Factbook

The agreements eliminate dual social security coverage and taxes for multinational companies and expatriate workers. They also improve benefit protection for workers who have divided their careers between the United States and another country.

The treaties are in place to improve social security protection for people who work or have worked in the United States and one of the countries covered by a treaty. It helps people who, without the agreement, would not be eligible for monthly retirement, disability or survivors benefits under the Social Security system of one or both countries. It also helps people who would otherwise have to pay Social Security taxes to both countries on the same earnings.

Most agreements cover Social Security taxes (including the US Medicare portion). They may also cover retirement, disability and survivors insurance benefits. It usually does not cover benefits under the US Medicare program or the Supplemental Security Income (SSI) program.

How does it work?

If your employment or self-employment is covered by both the U.S. and home social security systems, the individual and the employer would normally have to pay social security taxes to both countries for the same work. The agreement eliminates this double coverage, so that taxes are paid to only one system.

The individual may have some social security credits in both countries but not enough US credits to qualify for regular US Social Security benefits. In this case, if an individual has a minimum number of US credits, American social security can count those credits under the individual's home system so they may be able to get a partial benefit from the US. In addition, the agreement can help an individual qualify for their home security benefits even if they do not meet the normal eligibility requirements.

Before the agreement, employees, employers and self-employed persons could, under certain circumstances, be required to pay social security taxes to both the US and their home country for the same work. Under the agreement, if an individual works in the US, the US normally will cover the individual, and the individual and their employer will pay social security taxes only to the US. If the individual works only in their home country, they normally will be covered by their system, and they pay social security taxes only to their home country.

But, if the individual is employed and the employer sends them from one country to the other for five years or less, or if they are self-employed and an individual transfers their business from one country to the other for five years or less, they will remain covered by the first country and be exempt from social Security taxes in the other country.

It is impossible to spell out all the ins and outs in this brief. The complexity of the US tax and social security rules makes it important that you contact a US tax expert, whether moving to the US temporarily or permanently.

VISAS

Most visitors to the US require a visa, with the exception of citizens from the UK, Australia, New Zealand, Japan, Austria, Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Portugal, Slovenia, Spain, Sweden and Switzerland. A reciprocal visa-waiver program allows those citizens of to stay up to 90 days without a visa if they have an onward ticket. Canadians need only proof of citizenship.

For those heading to the US to live and work, the Immigration and Nationality Act provides several categories of non-immigrant visas for a person who wishes to work temporarily in the United States.

For the majority of foreign workers, the H-1 visa system is the work permit of choice, while others are issued L-1 Visas (inter-company transfer).

The H-1B classification applies to persons in a specialty occupation, which requires the theoretical and practical application of a body of highly specialised knowledge requiring completion of a specific course of higher education. This classification requires a labour attestation issued by the Secretary of Labour.

The current law limits to 195,000 the number of aliens who may be issued a visa or otherwise provided H-1B status. In 2004, the number of aliens who can be issued an H-1B visa or be provided H-1B status otherwise will revert to 65,000.

H-1B status requires a sponsoring US employer. For more information, see http://www.immigration.gov/graphics/howdoi/h1b.htm

The L classification applies to intra-company transferees who, within the three preceding years, have been employed abroad continuously for one year, and who will be employed by a branch, parent, affiliate, or subsidiary of that same employer in the US in a managerial, executive, or specialized knowledge capacity.

If your company has a subsidiary (or parent) organisation overseas and you are looking to ‘import’ labour from that country, a Treaty Investor Visa (The ‘E’ Visa) may be established. The benefits of this to your business are that it can significantly reduce the time needed to obtain a work permit — perhaps one or two weeks from filing the application — but, unlike H-1 visas, cannot be transferred from one US company to another.

Petitions: In order to be considered as a non-immigrant under the above classifications, the applicant's prospective employer or agent must file Form I-129, Petition for Non-immigrant Worker, with the Bureau of Citizenship and Immigration Services (BCIS) .Once approved, the employer or agent is sent a notice of approval, Form I-797. It should be noted that the approval of a petition shall not guarantee visa issuance to an applicant found to be ineligible under provisions of the Immigration and Nationality Act.

Applying for the visa: Applicants for temporary work visas should generally apply at the American Embassy or Consulate with jurisdiction over their place of permanent residence. Although visa applicants may apply at any US consular office abroad, it may be more difficult to qualify for the visa outside the country of permanent residence.

Required documentation: Each applicant for a temporary worker visa must pay a non-refundable USD 100 application fee and submit:

1) The appropriate application form, completed and signed. Blank forms are available without charge at all US consular offices. You can also download all forms here: http://travel.state.gov/visaforms.html

2) A passport valid for travel to the United States and with a validity date at least six months beyond the applicant's intended period of stay in the United States. If more than one person is included in the passport, each person desiring a visa must make an application.

3) One photograph 2 inches square (roughly 50mm square) for each applicant, showing full face with head centred. More details on photo requirements here: http://travel.state.gov/photorequirements.html

4) A notice of approval, Form I-797.

5) All male non-immigrant visa applicants between the ages of 16 and 45, regardless of nationality and regardless of where they apply, must complete and submit a form DS-157 in addition to the Non-immigrant Visa Application (DS-156).

Other documentation: With the exception of the H-1 and L-1, applicants may also need to show proof of binding ties to a residence outside the United States which they have no intention of abandoning. It is impossible to specify the exact form the evidence should take since applicants' circumstances vary greatly.

US port of entry: Applicants should be aware that a visa does not guarantee entry into the United States. The Bureau of Customs and Border Protection (BCBP) has the right to deny admission.

Family members: With the exception of "Q-1 Cultural Exchange Visitors," the spouse and unmarried, minor children of an applicant under any of the above classifications may also be classified as non-immigrant in order to accompany or join the principal applicant. A person who has received a visa as the spouse or child of a temporary worker may not accept employment in the United States. The principal applicant must be able to show that he or she will be able to support his or her family in the United States.

Time limits: The H and L visa categories have fixed time limits fixed time limits in which the alien may perform services in the United States. In some cases the BCIS may extend those time limits in order to permit the completion of the services.

For more information on visas, see

http://www.immigration.gov/graphics/services/visas.htm
http://travel.state.gov/visa_services.html

TIPS FOR HR PROFESSIONALS

Sending workers to the United States can seem an extremely complex and taxing prospect. As the US economy continues to slow, and fears over more terrorist attacks resonate, moving in and out of the country has become more and more difficult. Many expats living and working in the US face difficulties entering the country, and this doesn’t look set to change anytime soon.

Add to that the complex tax laws and social security laws, and it all adds up to challenging move.

Because of this, if you are sending workers to the US, be sure to consult with US tax, social security and immigration experts to help avoid any complications.

NEWS

January 2002: President George W Bush signed legislation on 16 January 2002 that permits the spouses of L and E visa holders to obtain work authorisation while they are in the United States. The same legislation also reduced the period of qualifying employment for L applicants under the Blanket L programme from one year to six months.

June 2002: The H1-B visa program looks set to revert back to pre-1998 numbers in the wake of the shrinking of the US IT industry. The H1-B visa program, which allows foreign workers to take positions temporarily in the United States, was limited to 65,000 pre-1998. But in that year, the numbers of workers allowed into the country on that visa increased three-fold to 195,000 to combat a chronic IT skills shortage. Now, though, it seems the pendulum has swung again, and the number of H1-B visas looks set to drop back to 65,000 in 2004 as the economic slowdown continues to batter the US IT industry.

July 2002: On 4 July, Egyptian man Hesham Mohamed Hadayet's was the fourth person in line at the ticket counter for El Al, Israel's national airline, when he began firing, killing two people and wounding three others, authorities said. He fired off 10 or 11 bullets before he was shot dead by an El Al security guard. In response to the shooting, the new U.S. Transportation Security Administration announced that it would have armed law enforcement officers stationed at airport ticket counters and other public areas of airports.

LINKS

The Bureau of Citizenship and Immigration Service website
http://www.immigration.gov

Tips for temporary workers to the US
http://travel.state.gov/visa percent3Btempwkr.html

Social Security Administration website highlighting US bilateral social security agreements.
http://www.ssa.gov/international/inter_intro.html